Canada: Government Of Canada Provides Greater Clarity Around National Security Reviews And Reaffirms Higher Threshold For Net Benefit Reviews Under Investment Canada Act

Summary

On December 19, 2016, Minister of Innovation, Science and
Economic Development, Navdeep Bains, announced the release of
long-awaited guidelines relating to the national security review of
investments by non-Canadians, and reaffirmed the Liberal
government's intention to raise, in April 2017, the threshold
for net benefit reviews of investments by investors from WTO member
countries from $600 million to $1 billion.

Guidelines on the National Security Review of Investments

In 2009, the Investment Canada Act (the
"Act") was amended to introduce reviews
of investments on national security grounds, in addition to the
separate review of investments on grounds of whether they are of
"net benefit to Canada." These new provisions gave the
Cabinet the power to order reviews of investments by non-Canadians
of any size where the investment "could be injurious to
national security." However, until this week, there had been
no published guidance respecting the factors to be considered in
ordering or conducting such reviews.

With the release of the Guidelines on the National Security
Review of Investments (the
"Guidelines"), the Government of Canada
has provided some important clarity and guidance concerning the
factors the Minister or Cabinet may consider when making
determinations relating to national security under the Act.

The factors cited by the Guidelines are:

The potential effects of the
investment on Canada's defence capabilities and interests;

The potential effects of the
investment on the transfer of sensitive technology or know-how
outside of Canada;

Involvement in the research,
manufacture or sale of goods/technology identified in Section 35 of
the Defence Production Act;

The potential impact of the
investment on the security of Canada's critical infrastructure.
Critical infrastructure refers to processes, systems, facilities,
technologies, networks, assets and services essential to the
health, safety, security or economic well-being of Canadians and
the effective functioning of government;

The potential impact of the
investment on the supply of critical goods and services to
Canadians, or the supply of goods and services to the Government of
Canada;

The potential of the investment to
enable foreign surveillance or espionage;

The potential of the investment to
hinder current or future intelligence or law enforcement
operations;

The potential impact of the
investment on Canada's international interests, including
foreign relationships; and

The potential of the investment to
involve or facilitate the activities of illicit actors, such as
terrorists, terrorist organizations or organized crime.

Recognizing that these factors are relatively broad, the
Government has encouraged investors, particularly where any of
these factors are present, to contact the Investment Review
Division at the earliest stages of the development of their
projects, and to file a notification or application for net benefit
review in sufficient time to ensure that any national security
review is triggered before a transaction closes. The Guidelines
also reinforce the readiness of officials to meet with investors to
discuss their projects.

Liberalized Thresholds for WTO Investors

Minister Bains also reaffirmed his government's plan to
raise, in April 2017, the monetary threshold for net benefit
reviews of certain investments to $1 billion (from the current $600
million). This threshold, measured on the "enterprise
value" of the business, applies to direct investments in
Canadian businesses by private sector investors from WTO member
countries, or acquisitions of businesses currently owned by such
investors. The previous government had planned to raise the
threshold for such investments in stages, from $600 million to $800
million in 2017 and to $1 billion in 2019. The threshold for
state-owned enterprises from WTO member countries remains at $375
million in book value for 2016, to be adjusted by a GDP-based
formula in the new year.

Conclusion

These announcements are welcome developments that reflect the
generally pro-investment environment ushered in by Justin
Trudeau's Liberal government just over one year ago. They are
particularly positive signs in light of heightened concerns over
growing protectionist sentiments and geopolitical instability
internationally. We will continue to watch and report on these
developments as they unfold.

The content of this article does not constitute legal advice
and should not be relied on in that way. Specific advice should be
sought about your specific circumstances.

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